The implicit premise of the title is that the US is not in a recession, which is open to question. From Wolf Richter at wolfstreet.com:
The red flag: “slump” in imports despite the Strong Dollar
The dollar has strengthened against other currencies since mid-2014 as the Fed was tapering QE Infinity out of existence, and as it began flip-flopping about rate increases. Dollar strength should have done two things in terms of international trade:
1. Weaken exports as US goods would become less competitive for buyers using other currencies;
2. Strengthen imports as imported goods would be cheaper compared to US-made goods.
The first has happened. But the second has not happened: Imports have been in a down-trend since mid-2015. This is something that should not happen when the dollar is strong, and it has flummoxed the folks at the New York Fed’s Liberty Street Economics:
The growth in US imports of goods has been stubbornly low since the second quarter of 2015, with an average annual growth rate of 0.7%. Growth has been even weaker for non-oil imports, which have increased at an average annual rate of only 0.1%.
So oil imports cannot be blamed.
This is in sharp contrast to the pattern in the five quarters preceding the second quarter of 2015, when real [inflation adjusted] non-oil imports were growing at an annualized rate of 8% per quarter.
The timing of the weakness in import growth is particularly puzzling in light of the strong US dollar, which appreciated 12% in 2015, lowering the price of imported goods relative to domestically produced goods.
The “recent slump” in imports of non-oil goods becomes clear in this chart that shows imports as a ratio of GDP, adjusted for inflation. The ratio of non-oil imports = red line; the ratio of total goods imports (including oil) = blue line:
The analysis looked at imports by its major components and found that imports of capital goods – equipment that businesses buy and invest in to expand or improve their operations – were “quite soft” from Q2 2015 through Q1 2015. Here’s why:
Early in 2015, this weakness in capital goods was due in part to declines in drilling-related equipment imports, while in the first quarter of 2016, it was due to other subcategories, such as telecommunications and aircraft.
Where are the American consumers?
Another striking feature is the negative contribution from consumer goods in the period from the fourth quarter of 2015 through the second quarter of 2016: despite the strong dollar, US consumers and retailers were not switching to imported goods.
That’s not supposed to happen, according to economic modeling. The chart below shows the contribution to import growth of capital goods (blue), auto (yellow), consumer goods (light gray), and other (dark grey). The black dots inside the columns denote total imports of non-oil goods – a drag on imports in three of the last four quarters.
I circled the consumer “contribution” to imports over the last three quarters: that “contribution” has been a big drag. Note that the contributions from “auto” also turned into a drag in Q2, which is when growth in the US auto sector began to wane:
To continue reading: This is “Unusual Outside a Recession Period”: New York Fed Grapples with Weak Demand
